Personal health and wellness is one of the many secular tailwinds for healthcare companies. Despite the rosy long-term prospects, short-term headwinds such as COVID inventory destocking have harmed the industry’s returns - over the past six months, healthcare stocks have collectively shed 7.7%. This drop is a noticeable divergence from the S&P 500’s 5.5% return.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one resilient healthcare stock at the top of our wish list and two we’re swiping left on.

Two Healthcare Stocks to Sell:

Royalty Pharma (RPRX)

Market Cap: $15.78 billion

Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ: RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.

Why Are We Wary of RPRX?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.2% annually over the last two years
2. Subscale operations are evident in its revenue base of $2.31 billion, meaning it has fewer distribution channels than its larger rivals

At $36.51 per share, Royalty Pharma trades at 7.3x forward P/E. If you’re considering RPRX for your portfolio, see our FREE research report to learn more.

Elanco (ELAN)

Market Cap: $8.94 billion

Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE: ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.

Why Does ELAN Give Us Pause?

1. Annual revenue growth of 1.8% over the last two years was below our standards for the healthcare sector
2. Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
3. Negative returns on capital show management lost money while trying to expand the business

Elanco is trading at $17.99 per share, or 20.5x forward P/E. Check out our free in-depth research report to learn more about why ELAN doesn’t pass our bar.

One Healthcare Stock to Watch:

Abbott Laboratories (ABT)

Market Cap: $225 billion

With roots dating back to 1888 when founder Dr. Wallace Abbott began producing precise, dosage-form medications, Abbott Laboratories (NYSE: ABT) develops and sells a diverse range of healthcare products including medical devices, diagnostics, nutrition products, and branded generic pharmaceuticals.

Why Does ABT Catch Our Eye?

1. Scale advantages are evident in its $43.11 billion revenue base, which provides operating leverage when demand is strong
2. Share buybacks propelled its annual earnings per share growth to 10.2%, which outperformed its revenue gains over the last five years
3. Strong free cash flow margin of 16.7% enables it to reinvest or return capital consistently

Abbott Laboratories’s stock price of $129.20 implies a valuation ratio of 23.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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